The Vail Valley offers many possibilities for Income and/or Investment Property. We have extensive experience (60+ combined years in this area) assisting buyers and sellers of Income Property and Investment Opportunities.
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This page is intended to provide useful information about real estate held for investment, especially in a resort area. There are tax and expense considerations, so check with your tax advisor.
Considerations
- Income Property -or- Second Home – what are your objectives? Do you want a retreat for you and your family in the mountains, purely income property or a combination of both. There are limitations on personal use of real estate held for investments.
- Cash Flow – if you choose to rent your unit out the cost of ownership can be reduced by renting the unit out when you are not using it, but do not expect the income to exceed the expenses with a typical 80% mortgage, this rarely happens. If you increase the down payment to reduce debt service you could possibly reach a positive cash flow. A good “estimate” of the rental income can be derived from a thorough analysis of the rental history for the property you are considering as well as the area it is in. The major costs of ownership will be: debt service with your new mortgage (principal and interest), taxes and insurance, home owners association dues and maintenance fees, homeowner assessments for planned improvements, property management fees and rental commissions/splits.
- Rental History – if the unit under consideration has been rented in the past, there should be a rental history for you to analyze. Your Realtor will obtain this information from the current rental office or the seller. If a rental history is not available, your Realtor can assist with an estimate based on the location of the property.
- Location – a good location will improve the chances of your unit being rented. The better the location the more costly you can expect a unit to be. Some good locations are: ski-in/ski-out, on the free bus routes and close to the entrance of Beaver Creek.
- Purchase Price – will predominently be a function of size, location, amenities, condition, recent sales and current inventory.
- Earnest Money – should you submit an offer to purchase a property you will be expected to extend “earnest money” to show your “good faith” in the transaction. If your offer is accepted the earnest money will be applied toward the purchase at closing time. If you cannot negotiate acceptable price and terms your earnest money will be returned.
- Transfer Tax – many of the communities in the Vail Valley have a Transfer Tax that is paid at the time of closing. This tax varies from about 0-2.5% and WHO pays the tax is negotiable, but typically split 50/50.
- Up Front Costs – when you submit a contract to buy an available unit your earnest money will later be used to offset the purchase price or down payment. There will be costs associated with title insurance and with any new mortgage; your mortgage company will give you a best estimate of their charges and your title insurance company will give you a preliminary settlement sheet that outlines all costs.
- Tax Implications – consult your tax advisor on your situation. If you are selling an investment property and purchasing another investment property, consider the advantages of a 1031 Exchange; if you are eligible, you will defer capital gains taxes and apply all your equity to the purchase of the new property.
- Financing and Loan Qualification – I recommend that you talk to a mortgage company first and obtain pre-qualification for the maximum amount possible. This does not obligate you to purchase at that level, but if you find something priced above your initial parameters you do not have to obtain re-approval.
- Furnished Units – some units listed for sale are furnished and the sales price reflects these assets.
- Personal Use – consult your tax advisor on personal use of income property. There are rules that you must follow to keep your investment qualified for tax purposes.
- Appreciation – no one can predict what will happen in the future, we can only report on the past. In 2008 and 2009 home values declined significantly throughtout the country. Since then the real estate market has been making a steady comeback. Most of the 1980’s saw property values remain fairly flat and the ’90s saw substantial increases.